Why contract contingencies are a must
Why contract contingencies are a must
Some buyers look for years before they find the right home to buy. These are usually repeat buyers. They already own a home, but it no longer meets their needs. And, they could be trying to find a home in a high-demand, low-inventory market.
In 2008, a couple in Oakland, Calif., made three offers on listings, in competition, before they were successful in buying a replacement home. Granted, they had specialized needs. Most people do when they make a move from their first home to one that will work for them indefinitely.
During the last several years, there has been a dearth of quality listings priced right for the market. Often, when a prime listing comes on the market, there is more than one buyer making offers. Consider yourself lucky if you find your dream house, or close to it, early on in your house search.
Often buyers have a difficult time buying a home they see the day they start looking. What if something better comes along? Is there something better currently on the market? Is the listing worth what the seller is asking?
HOUSE HUNTING TIP: Don't pass on a great listing just because you found it quickly (without having to look for months or more). However, try to complete your due diligence investigations, at least on the value of the listing, before you make an offer. This will increase your comfort level if you act swiftly.
Ask your real estate agent to show you any similar listings that might suit your needs to see if there's one you might like as well or better. If there aren't any comparable listings for sale, find out how often listings similar to the one you like come on the market.
Some homes, particularly in housing developments, are similar to one another. You might expect to see more homes you'll like in the near future. So, there's no pressure to act quickly. However, if the home is unusual in terms of availability, give it careful consideration.
Whether you're buying immediately or months later, make sure your real estate agent provides you with comparable sales information. You want to know about currently pending listings in the neighborhood that are similar in size and condition, as well as the most recently sold listings available.
Finding recently sold comparables is difficult at the beginning of year. New underwriting guidelines require that the lender's appraiser provide comparable sales information for the past three months. Before the housing market declined, lenders looked at comparables for the previous six months. Now, lenders' underwriters are sensitive to the state of the local market in question: stable, advancing or declining.
Most sellers don't bring their homes on the market between December and March, creating a void in the bank of comparable sale information. The inventory of closed sales for the year usually starts to grow in April and May.
When appraisers can't find enough data to adequately analyze the market value of a listing, they will go further back in time, or broaden the geographical search area, and make adjustments. As a buyer, you can protect yourself if you feel unsure about the value of a listing by including an appraisal contingency in the purchase contract.
This way, if the property doesn't appraise for the purchase price, you can withdraw from the contract without penalty, depending on how your contract is written.
Find out if there are disclosures that you can review before making an offer. If the listing needs a lot of work and you're reaching to meet the seller's price, you might want to reconsider making an offer, or offer a price that takes the needed work into account.
THE CLOSING: In any event, include an inspection contingency in your contract.
Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author of "House Hunting: The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide."
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